Q&A: Affording Your First Home

Q: I am a 23-year-old professional, and I'm eager to buy a home. I just landed a new job with great pay and benefits. What's your advice to a young woman ready to spread her wings? {

A: First, you need to decide how much home can you afford. It's not an easy question. But figuring it out can be fun—in a treasure-hunting sort of way. Let's start with three of the most important factors that will drive your purchase:

The estimated price of the home you want.

The target amount of your down payment.

How much you can afford to spend each month on ALL the expenses relating to home ownership.

Although you may know, say, what a one-bedroom condo is likely to cost in your area, you'll need to call a realtor to find out the maintenance charges, fees and property taxes.

Next, determine the amount you can save each month. If you can sock away $700 a month, it will take you at least 21 months to save a $15,000 down payment. Reality check, right?

If you earn $50,000 and put down $15,000, that could enable you to buy a $154,000 home, with a 30-year fixed mortgage of about $139,000, and an $1,166 payment (including insurance, taxes).

Can you afford that much house? Remember: You need to save a few thousand for closing costs. And if your down payment is less than 20% of the purchase price, you'll pay an extra sum for private mortgage insurance (PMI) each month. If you're buying a condo, factor in maintenance or building charges every month, too.

So, with a salary of $50,000 -- and approximate take-home pay of $35,000, or about $2,900 per month -- a mortgage payment of $1,166 leaves you only $1,750 to cover all your other expenses.

Ideally, your monthly payment should be about a third of your income. So start over: reconsider your target price, or making a bigger down payment, until the numbers add up to what you can afford comfortably. Happy treasure hunting!